China Mobile Starting to Need an iPhone Deal

More than six years after beginning talks with Apple, China Mobile, China’s largest wireless phone operator, has yet to add the iPhone to its handset portfolio.

Negotiations between the two companies proceeded slowly, hamstrung by disagreements over subsidies and China Mobile’s demands for a cut of App Store app sales made over its network. To date, both Apple and China Mobile have held significant bargaining power in discussions — the former thanks to the the wildly popular iPhone itself, the latter thanks to a massive subscriber base befitting the world’s largest wireless carrier. And this may have contributed to the stalemate that appears to have stalled any progress on a deal.

But that may soon change, thanks to a tipping of the balance in Apple’s favor. According to Evercore Partners analyst Rob Cihra, China Mobile’s traction in the 3G market is slipping, and that may well be due to the fact that it still doesn’t offer the iPhone.

“We think China Mobile could be starting to ‘need’ the iPhone more, since it has seen its 3G market share erode by -7 percent to 37 percent since 2011 vs. China Telecom+Unicom having gained +7 percent to 63 percent,” Cihra said. “China Unicom alone has added nearly 2 million more 3G subs than China Mobile year-to-date despite being almost 1/3 the size, and overall share losses look to correlate with introduction of the iPhone in Mainland China.”

Given that, Cihra figures that Apple likely holds more bargaining power than it did a few years ago, and feels that the company will probably squeeze a satisfactory deal out of China Mobile in the second half of this year. And if it does manage to do that, the payoff could be huge. With just 20 percent penetration of the carrier’s 3G/4G subscribers, China Mobile could provide Apple with a 16 million iPhone opportunity in its first full year.

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